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The Great Post Office turnaround: is it working?

Part 1: Is the turnaround of the Post Office working?

12 September 2018 - 05:07
Carol Paton

Closed for business: Post Office workers join the national strike in mid-year to demand a 12% salary increase. When the strike ended in July, 45-million mail items were piled up in post offices around SA. Picture: PILANATHI RASMENI

With a backlog of 29 million parcels still sitting in depots after a two-and-a-half-week strike in July, many have reasonably concluded that the attempt by its ebullient CEO, Mark Barnes, to turn around the anachronistic institution has failed.

Business Day has been inundated with letters from annoyed members of the public asking for an investigation into the Post Office.

The immediate explanation for the breakdown in postal services was the strike. With more than 2.6 million items coming into its depots every day, when work stops it does not take long to build to a mountainous backlog.

When the strike ended in July, 45 million letters and parcels were piled up on pallets around the country. Post Office COO Lindiwe Kwele swears the backlog will be conquered by the end of September.

When Barnes got there in 2017, its success rate was 72%. Before the strike hit, it peaked at 87%. And there are other small signs of change.

It is pretty clear, though, the strike aside, that despite the best efforts of Barnes – a smart and brash maverick, who took on the job out of duty and not financial need – and Kwele, an excellent and deeply committed manager, the ship has not yet turned.

The Post Office does not meet the condition of its licence to deliver 92% of ordinary mail in five days.

But it has improved.

When Barnes got there in 2017, its success rate was 72%. Before the strike hit, it peaked at 87%. And there are other small signs of change.

The Post Office had a clean audit in 2018, and managed to cut its annual loss by 8% to R908m. Its overdraft of R400m is tiny in the world of state-owned enterprise debt.

A R3.7bn capital injection from the Treasury in October 2017 was used to pay creditors and pay down debt.

More importantly, though, there is now a plan for The Great Post Office Turnaround. It is an ambitious one and might even work, assuming that Barnes gets the backing to do it. As he is fond of saying after one of his typically expansive accounts on how to fix the Post Office: "Just imagine if it works."

To understand what an achievement success would be, look at the context.

Communication by letter is a social practice in decline. But the Post Office’s mandate from the government, which is specified in its licence conditions, is that it must deliver post to everyone within a reasonable distance of where they live. This is regardless of whether it is profitable to do so or not.

For this it enjoys certain monopoly protection. No-one else may transport and deliver packages of less than 1kg, sell stamps or set up red post boxes on street corners. But all of this has, unsurprisingly, been ignored by the market.

As the Post Office got worse over the years, the courier business got bigger and better. Instead of its privileged place as a government institution providing a competitive advantage, the social mandate has been a burden.

In 2014, trade unions had been lied to by an unscrupulous management. Workers were promised that part-timers would be made permanent, but this never happened. So they went on strike. It was long and bitter and dragged on for four and a half months. Labour relations were badly damaged and the business of the Post Office damaged irreparably.

The public despaired and moved to more expensive, private options. The Post Office lost 30% of its turnover.

Today the delivery of ordinary mail is a loss-making business to the tune of about R800m a year.

Over the past 10 years, corruption and mismanagement had also further weakened the financial position. Minister of telecommunications & postal services Siyabonga Cwele eventually forced the entire board to resign in 2015 and brought in the Special Investigating Unit.

Reckless business decisions were also made. For instance, the head office moved out of its own building in central Pretoria to swanky offices in Centurion with a rental of R4m a month. Smaller post offices did the same, moving out of buildings they owned into rental space in malls and shopping centres.

The Post Office inexplicably bought a loss-making courier service from Transnet, says Cwele, with a business model so deeply flawed that it can never succeed. Out of fear of labour unrest, Cwele says he has not dared place the company where it should be — in business rescue.

Until 2011 the Treasury subsidised the Post Office by R300m a year to enable it to meet its mandate to deliver post. Then the subsidy was phased out because, says the Treasury, it was making a healthy profit. Cwele believes this decision was based on a mistake because the Post Office had erroneously represented the subsidy as a profit in its financial statements.

The result, says Barnes, is that even though the Post Office has 1,500 branches and 696 agencies, it has been unable to use its extensive infrastructure to competitive advantage. Some 300 courier companies now provide a world-class service, while the Post Office drowns in letters and packages from online retailers.

And just as competition burgeoned and technology transformed logistics and communication, the government stopped investing in, or even maintaining, Post Office infrastructure.

At the central post office in Johannesburg, employees "compete with the rats and mice to sort the letters", says Cwele. At the central Durban post office, the roof leaks. In Tshwane, there is no heating and broken windows have not been repaired, leading the night shift to stop work in July in protest at working conditions.

Mail services elsewhere in the world are automated. SA barely has automation to speak of, and where it does — at the main sorting facility at OR Tambo Airport — the equipment is out of order. Barnes reckons SA is a decade behind the developed world.